Reza Moghadam – The third man’s man

Three years on and €350 billion in aid later, it seems strange to remember that the first months of the eurozone’s debt crisis were marked by a debate over whether to involve the International Monetary Fund (IMF). In the end, the German government got its way and the ‘troika’ of the European Commission, the European Central Bank and the IMF was born. Yet today (10 October), as the EU’s economic policymakers head to Washington, DC for the annual meetings of the IMF and World Bank, some are questioning the need for the troika arrangement and whether the presence of the ‘third man’ in the eurozone is of real benefit.

That the IMF’s attitude towards Europe has hardened noticeably over the past 18 months. While some think this reflects a loss of patience by the fund’s executive board, others give a two-syllable reason: “Reza.”

Reza Moghadam, a 21-year IMF veteran and British national, was asked two years ago by IMF managing director Christine Lagarde to take over the fund’s European department. It came as no surprise to some that, given concerns about debt sustainability, the first eurozone programme agreed under the new director – for Cyprus – provided less aid and forced losses on large bank depositors.

On taking the job in November 2011, Moghadam was determined to emphasise “even-handedness” to counter a growing perception, especially in emerging markets, that Europe’s over-representation inside the IMF’s governance was translating into a capture of its resources. The Cypriot case sent a message: the IMF negotiators were the toughest in the room. Cyprus received IMF aid worth just six times its fund quota (Greece received 22 times its quota, and Ireland 16).

The fund’s role in the troika has been to act as an external monitor to reassure creditors that Greece, Ireland, Portugal and Cyprus would meet the conditions set in return for their soft loans. For EU creditors, the IMF has been a welcome contributor, lending €80bn and bringing technical experience of country rescues that helped strengthen the credibility of the adjustment programmes. It has also been prepared to think the unthinkable: in Greece, a restructuring of privately held debt, and in Cyprus, a contribution by large depositors to the island’s rescue.

Support for debt forgiveness by private creditors was one thing. But it was quite another when, this time last year, the IMF reportedly threatened to stop funding the Greek programme without an assurance that eurozone governments would consider a debt write-off. Formerly IMF-friendly EU officials were infuriated by an IMF report in June that claimed “debt restructuring had been considered” in 2010 but was overruled by eurozone authorities.

The change in mood may reflect the line adopted by Moghadam, renowned as a tough negotiator with a policymaking network developed over a decade at the top of the IMF. Born in Borujerd in western Iran and raised in Tehran, he was in the middle of his pre-university courses when revolution broke out in 1979. Worried that the new regime would close the universities, Moghadam’s parents sent him and his brother – with their English no more than competent – to finish their schooling in London, where, in addition to learning, he developed a passion for cycling and for Chelsea Football Club.

By 1982, he was studying mathematics at Oxford and developing a fascination for economics. Following a master’s degree at the London School of Economics and Political Science, he chose the University of Warwick for his PhD on the factors that determine wages. Not only was Warwick a developing hub for economics, but the university allowed Moghadam the flexibility to finance his studies by teaching there, as well as in London and Bristol. It was also at this time that he put his engineering skills to good use by working on the renovation of the LSE’s Phillips Machine, a 60-year-old hydraulic model of the British economy.

Curriculum Vitae

1962: Born, Borujerd

1985: Degree in mathematics, University of Oxford

1987: Master’s degree in economics, London School of Economics and Political Science

1990: PhD in economics, University of Warwick

1990-92: Consultant, Coopers, Lybrand & Deloitte

1992-97: Economist in the IMF’s European department

1997: Economist in IMF’s Asia Pacific department

1997-99: IMF resident representative, Thailand

1999-2001: Chief of IMF mission to Thailand and Indonesia

2001-03: Adviser, office of IMF deputy managing director

2003-05: Assistant director and senior adviser in the IMF’s European

department

2005-08: Senior adviser, office of IMF managing director

2008-11: Director, IMF’s strategy, policy and review department

2011-: Director, IMF’s European department

The IMF attitude towards Europe has hardened noticeably over the past 18 months. While some think this reflects a loss of patience by the fund’s executive board, others give a two-syllable reason: “Reza”

A short career in the private sector was interrupted by a six-month secondment to the civil service, where Moghadam developed a taste for public policy. In 1992, he applied to join the IMF’s Economist Program, took a two-year sabbatical from work and never went back. Joining the European department, he was immediately immersed in the economic fall-out from the collapse of the communist states, German reunification, and the implosion of the exchange-rate mechanism. Showing a knack for arriving at IMF units just as crisis struck, Moghadam joined the Asia Pacific department in 1997, just as financial collapse in Thailand spread to Indonesia, South Korea and beyond. He was asked to become the fund’s representative in Bangkok, which provided on-the-ground experience of programme implementation in Thailand and later in Indonesia. It was in Thailand that the youngest of his three children was born.

Returning to IMF headquarters in Washington in 2000, Moghadam got his foot on the policy ladder as adviser to Anne Krueger, then the first deputy managing director, just as crisis hit the countries for which she was responsible: Argentina, Brazil and Turkey. His interest piqued, Moghadam applied in 2003 to become Turkey’s mission chief at a time when its programme was off track, inflation out of control and a newly-elected government trying to find its feet in the build-up to war in Iraq. Moghadam’s successful re-making of the programme laid the foundation for the country’s subsequent economic success and burnished his reputation.

In 2005, armed with experience in the field and under Krueger, who had since become the IMF’s acting chief, Moghadam applied to head the office of Rodrigo de Rato, the new managing director. When Rato quit the fund unexpectedly in 2007, incoming boss Dominique Strauss-Kahn sounded out Moghadam to see if they could work together, since he needed an insider to bolster morale and oversee internal changes. It turned out they could and, after serving as the managing director’s adviser, Moghadam was appointed head of the pivotal strategy, policy and review (SPR) department with a mandate to come up with ideas for Strauss-Kahn to execute.

Under Strauss-Kahn, SPR carried out a thorough review of the IMF’s lending and established precautionary credit lines and facilities for underdeveloped economies, as well as refining the conditions attached to loans.

It is fortunate that this re-engineering of the fund was carried out before the European crisis hit. On taking office in mid-2011, Lagarde took a step further with a landmark speech in which she advocated a bolder response to the crisis. Within three months she had moved Moghadam from SPR back to the European department – this time as its director – and the bolder approach has been palpable.